(The author is a Reuters Breakingviews columnist. The opinions
expressed are his own.)
By George Hay
LONDON, Feb 21(Reuters Breakingviews) - The angst that has
gathered around European insurers looks overdone. The shares of
UK insurer RSA (RSA.L) tanked 14 percent on Feb. 20 after it cut
its dividend by a third. Then on Feb. 21, Allianz (ALVG.DE), AXA
(AXAF.PA) and Swiss Re SRENH.VX respectively held, slightly
increased and substantially increased their own payouts. The
latter trend is the one that matters.
RSA cited a common headache for European insurers as the
reason for its payout cut. All are struggling with low bond
yields, a legacy of the flight to safe assets caused by the euro
zone crisis. For RSA, that meant investment income dropped 11
But investors should pause before they fear for other
companies. RSA is a general insurer and its investment income
suffers disproportionately because its assets are largely of
shorter, lower-yielding maturities than the likes of AXA and
Allianz, which have big, longer-term life insurance divisions.
More importantly, RSA’s decision not to cut its dividend during
the financial crisis took its payout ratio to almost 80 percent,
which is way too high.
AXA and Allianz might just be sailing too close to the wind.
But it doesn’t look like it. Their payouts are a more manageable
40 percent of earnings. The free cashflow that both will
generate by 2014 should cover their respective payouts twice
over, and Allianz in particular has fat capital reserves even
under more stringent “Solvency II” reforms, according to Citi
research. Swiss Re, meanwhile, is returning to investors unused
reserves earmarked for Storm Sandy.
The big question mark is Aviva (AV.L), which will report on
March 7. New Chief Executive Mark Wilson may decide a cut is
worth it: Aviva’s current 7 percent dividend yield is
uncomfortably close to its likely 9-10 percent free cashflow
yield. Yet, following the announcement of a major restructuring,
the UK insurer should also have a strong capital position and a
dividend payout covered two times by free cashflow in 2014, Citi
reckons. Now that AXA and Allianz have eased the pressure, Aviva
may prefer to hold the line too.
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- Allianz announced on Feb. 21 that net profit for 2012 was
up 96 percent to 5.5 billion euros, helped by double-digit
growth in its insurance business operating profit and a
one-third increase in asset management operating profit.
- The asset management division saw third-party net inflows
increase to 114 billion euros in 2012 from 38 billion in 2011,
with much of the improvement coming in Europe.
- Allianz said it would keep its dividend for 2012 stable at
4.50 euros, though full-year net profit after minority interests
more than doubled to 5.2 billion euros.
- AXA reported a decline in net income to 4.15 billion euros
from 4.19 billion the year before, a period that had been
boosted by 1.4 billion in exceptional gains. Analysts had
forecast net income of 4.43 billion.
- AXA also raised its dividend by 4 percent to 0.72 cents a
- AXA’s revenue rose 2 percent on a like-for-like basis to
90.1 billion euros, as gains in property and casualty and life
businesses outweighed a decline in asset management. Analysts
had predicted 94.8 billion euros.
- Swiss Re also said on Feb. 21 it would pay out a one-off 4
Swiss francs per share special dividend, as well as increasing
its annual payout 17 percent to 3.5 Swiss francs per share.
- By 1130 GMT on Feb. 21, Swiss Re was up 2.4 percent at
75.6 Swiss francs, AXA had fallen 2.4 percent to 13.4 euros and
Allianz was down 1.1 percent to 103 euros.
Allianz eyes calmer 2013 as euro crisis abates
AXA says 2012 earnings fall 4 pct, lifts dividend
British insurer RSA cuts dividend as investment sags
Swiss Re shares hit near 5-yr high after special dividend
- For previous columns by the author, Reuters customers can
click on [HAY/]
(Editing by Pierre Briançon and Sarah Bailey)
Keywords: BREAKINGVIEWS INSURERS/DIVIDENDS/
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